Crypto Coalition Unveils Plan to Mitigate Aave Token Exploit

The recent $300 million exploit has prompted a concerted effort to devise a repair strategy. DeFi United, a coalition of multiple blockchain projects and crypto ecosystem individuals, has outlined a step-by-step plan to restore the backing of rsETH following the Kelp DAO hack, which released over 116,000 unaccounted tokens into the market. The proposal, shared on Aave's official X account, details a coordinated approach to utilize Aave's infrastructure and stabilize the markets. The incident occurred on April 18 when an attacker exploited a vulnerability in rsETH's bridge, resulting in the release of 116,500 rsETH without proper backing. These tokens were subsequently dispersed across multiple wallets and deployed in DeFi, with a significant portion used as collateral on Aave and other lending platforms, causing protocols like Aave to hold unbacked collateral. According to the proposal, most of the exploited funds remain active, with approximately 107,000 of the original 116,500 rsETH still tied to positions on Aave and Compound. To address this, DeFi United's proposal aims to simultaneously restore the backing of rsETH and unwind the loans created using the extra tokens. The group claims to have secured sufficient ETH commitments to fully re-collateralize rsETH, which will be fed back into the system in stages. Meanwhile, the plan focuses on the lending markets, where the damage is most pronounced. Rather than allowing the situation to unfold chaotically, the proposal suggests a controlled unwind of the affected positions. A key aspect of this involves addressing the positions the attacker opened on Aave, which are essentially loans backed by rsETH that should not have existed. By temporarily adjusting the valuation of rsETH within the system, these bad positions can be liquidated or closed more smoothly, enabling the recovery of underlying assets like ETH. The proposal estimates that this could free up around 13,000 ETH from Aave alone, which can then be converted into ETH and used to cover the exploit-induced shortfall. While the process carries risks, including governance approvals and the successful deployment of committed funds, the plan represents a coordinated response. If executed as intended, the ultimate goal is to fully restore rsETH backing and stabilize the affected markets.